Mexico: Behind the Numbers

Mexico: Behind the Numbers

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Foreign trade in 2011: Manufactures did well

The statistics for Mexico's foreign trade in 2011 are now in. While they showed good growth, the percentage increases were close to half those registered one year earlier, reflecting in part the weakened international economic climate. However, percentage increases can be misleading.

For the year, according to preliminary but official data, merchandise exports increased by 17.2% to a record $349.7 billion dollars, but the December figure showed a year-on-year increase of just 8.2%, one of the weaker monthly growth performances during last year. 2011 imports meanwhile were up 16.4% at $350.8 billion dollars.

That left Mexico with a trade deficit for the year of $1.17 billion dollars. That figure represented a marked improvement over prior-year trade deficits. And in December, based on the data from Banco de Mexico and the National Statistics Institute (INEGI), the country enjoyed a small trade surplus of $8.0 million, meaning that Mexico registered a trade surplus on seven monthly occasions in 2011. Shown below is how Mexico's trade balance has stacked up in recent years.

As mentioned above, exports in 2011 grew at a less dynamic rate than was the case in 2010, in percentage terms. But measured in dollars, the year-on-year increase was not that dissimilar. In 2010, overall exports were up 29.9% while manufacturing exports increased 29.5%.

The comparison 2011 figures (from a much higher base) were 17.2% and 13.4% respectively. But the same dollar figures were comparatively better. Overall exports on the year increased by $51.2 billion dollars, vs. a $68.8 billion uptick in 2010. For manufactures, the increase was $33.0 billion, vs. $56.1 billion one year earlier.

It should be noted here that the 2010 percentage growth figures came off a very weak exports base in 2009, the result of the global financial and economic recession. In 2009, Mexico's exports declined 21%.

Strong 2011 export performances were turned in by the automotive, chemicals, aerospace, and information technology sectors. Even wearing apparel enjoyed a good growth year, particularly men's wear. Exports by the way in 2011 represented 30.3% of Gross Domestic Product (GDP), a record high. The figure could be closer to 31% this year.

Peru in February became the latest country with which Mexico has a Free Trade Agreement (FTA). Mexico now counts 13 FTAs in place, covering 43 countries. While Peru is not a major trading partner, it is interesting to note that over the past 10 years Mexico's exports to that country have increased on average by 25% annually.

Despite the claims and complaints of detractors, FTAs have been a major export detonator since the first one ever signed by Mexico –the North American Free Trade Agreement (NAFTA) with the U.S. and Canada – went into effect in this first phase back in January 1994. One year earlier (1993), Mexico's exports totaled just $30.0 billion dollars. Manufactured goods represented $20.8 billion or 60.9% of that total.

With the noticeable exception of Brazil, China and South Korea, almost 100% of Mexico's exports are earmarked for countries with which it has an FTA. And FTA negotiations with both Brazil and China (with which Mexico has a huge trade deficit) could take place this year.

So, in the period 1993-2011, Mexico's total annual exports have increased more than tenfold. Manufactures exports have soared an even greater percentage and last year accounted for a record 79.7% of the total.

Major players in the growth have been the automotive industry (see below) and maquiladoras. Between them, they accounted for close to $95 billion dollars worth of Mexico's gross exports last year. And they should have pretty much the same export share and favorable trade balance in 2012.

The Automotive Industry: Another Stellar Export Performance

There can be no doubt that the recent driving force in Mexico's exports economy has been the automotive industry. The industry now accounts for 20.0% of the country's entire exports spectrum and for 28.4% of its manufactures exports.

The 2011 exports figure was $79.7 billion dollars. That figure covers finished vehicles, ranging from subcompacts to heavy-duty tractor trailers plus auto parts. No pronounced future let up in the industry's export dynamics is foreseen.

They may in fact improve this year, thanks to an optimistic forecast for new vehicle sales in the U.S. And the prognosis for domestic sales also is positive. Auto industry exports in 2011 exceeded those of the petroleum sector by $23.3 billion dollars.

Way back in 1963, when the first Automotive Industry Integration Decree was first published, even the most optimistic of optimists couldn't foresee Mexico becoming a world player in automotive vehicle trade. It took several significant shifts in government automotive policy, plus the trade openings of 1985 (adhesion to the General Agreement on Tariffs and Trade) and 1994 (the birth of the North American Free Trade Agreement) to position Mexico as a major net exporter of automotive vehicles of all sizes. And with it the auto parts industry, with a strong assist from maquiladoras.

Mexico's in 2011 was the world's 9th largest producer of automotive vehicles and the 6th largest exporting country. Those positions should at least stay the same this year. Currently as direct results: 83% of Mexico's production of automobiles and light vehicle annual production is exported, according to the Mexican Automotive Industry Association (AMIA).

Meanwhile, 79% of total production of heavy-duty trucks and passenger buses is exported. The growth in Mexico's export sales of vehicles has been accompanied by a significant development of the auto parts supplier industry. In 1963, when the Integration Decree was promulgated, there were only a handful of auto parts manufacturers.

At present, according to the Secretary of the Economy, there are 618. This includes auto parts producers –and exporters– in the Maquiladora Industry. At last count, there were at least 300 auto parts maquiladoras, located primarily in northern Mexico. In 2011, the value of production by the auto parts industry reached a record $66 billion dollars, up 8% from one year earlier.

Exports to the U.S., which accounts for 80% of the annual total, rose 28% to some $36.0 billion. Last year, according to U.S. International Trade Commission data, Mexico accounted for 33.7% of all auto parts imports.

However, this year is already seeing several discouraging developments for the industry. Programmed (and previouslyannounced) expansion and new plant investments by the Detroit Big Three have been shelved because of contract negotiation pressures from the United Auto Workers (UAW). These investments would have further boosted vehicle production and exports potential in Mexico, as well as jobs. Instead they will be made in U.S. or Canadian plants of GM, Ford and Chrysler, plants where the UAW holds labor sway. However, they will not affect current production or employment levels at Big Three plants in Mexico.

In late January meanwhile came the news that Brazil is seriously considering "modifying" its automotive industry Economic Complementation Agreement with Mexico. That accord, dating back to 2002, covers bilateral exports of vehicles. Should Brazil substantially alter the ECA, unilaterally, it would substantially cut into Mexico's exports of vehicles to that country. Said exports have risen dramatically in recent years and totaled a record 131,384 units in 2011, up from just under 25,000 back in 2007. The most seriously affected Mexican exporter would be Volkswagen.

Top level bilateral talks on the threat to Mexican exports have already started. Despite the above, the outlook for 2012 and beyond remains "green light". The AMIA is expecting vehicle production of 2.7 million vehicles (+6.3%) and exports of 1.77 million vs 1.36 million last year. A 13% increase. The auto parts increases (production and exports) should also be solid.

One final bright note for this year. New car, SUV and light truck sales in the U.S. are expected to reach 13.9 million units, up 1.2 million units from 2011, according to the National Automobile Dealers Association. That's positive for Mexico's automotive export industry.